As a parent, it is natural to want your children to thrive and strive for success. You support them financially through college with aid for tuition, room and board, as well as other expenses.
But as your children forge their way toward adulthood, when do you cut the cord on financial assistance? It’s definitely a complicated decision, but as a parent you have to balance your retirement goals and learn to know when it is time to financially cut off your adult children.
Trending Now:Suze Orman’s Secret to a Wealthy Retirement–Have You Made This Money Move?
If you’re financially supporting your adult children, you’re certainly not alone. A study by Savings.com shows that nearly 50% of parents are supporting their adult children financially. The average amount parents are paying monthly is estimated to be about $1,384. This financial support includes everything from grocery bills to health insurance to cell phone charges.
In a January 2024 study, Pew Research Center also found that 44% of young adults received some financial help from their parents. These adult children mainly received help for household expenses, cell phone bills and subscriptions.
According to a recent Bank of America Better Money Habits survey, nearly 46% of adult Gen Zers rely on their adult parents for help.
As much as this parental help may benefit adult children, it comes at a cost. Working parents are contributing 2.4 times more to their adult children’s finances than to their retirement accounts. Parents are contributing $1,400 a month to help their adult children, while only saving about $600 for retirement.
Clearly, parents need to emphasize the importance of financial independence early. This approach will help parents not only save for retirement, but also launch their children financially.
Ending financial support for adult children can be a challenging but necessary step to help them build independence and financial responsibility. While the decision to cut back or fully end support often comes with mixed emotions, this step is necessary to preserve your retirement and to teach your adult children to become financially independent. Here is a guide on how to approach this delicate conversation:
Cutting off financial support immediately is likely too hard. As much as you can, you want to ease into this new transition with your adult children.
Having an open and honest conversation with your adult children about financial expenses could be a starting point. Let them know your financial boundaries especially if you are diverting retirement funds for their support.
The process of weaning your adult children from your financial support will take time. You will need to create a timeline for the reduction of support, discussing which expenses your adult children will take on first.
For example, you might begin with smaller bills, such as their phone or streaming services, and later transition to larger expenses, like rent or insurance. This gradual approach helps them build budgeting and saving habits, giving them time to gain confidence in managing their finances while ensuring they’re prepared for complete independence.
Creating a plan between you and your adult children is best. Make certain that you revisit the plan as needed so that you can manage any unexpected shifts in their finances as well as yours.
As your adult children work toward financial independence, they may need some resources along the way.
Here is a list of resources that could help:
YNAB. It provides a way to track financial goals, manage debt and track expenses.
Goodbudget. This app involves allocating portions of your income into virtual “envelopes” designated for specific expenses, such as rent, groceries or entertainment, promoting disciplined spending within set limits.
EveryDollar. Helps users manage their finances through zero-based budgeting. This method involves assigning a specific purpose for every dollar of income, ensuring that income minus expenses equals zero.
You and your adult child will navigate several emotions as you approach this new terrain. You may feel like you’re not doing enough or are doing too much. Having a discussion about what you and your adult children are feeling is important. There may not be any quick solutions, but open communication can help with next steps.
Some tips toward working through emotions means:
Refraining from making assumptions.
Managing guilt and resentment.
Offering emotional support as you both work toward financial goals.
Encourage adult children to create a budget. They can categorize their budget by listing the following:
Determine income. Total your income from salary, freelance work and investments.
Track expenses. Include your fixed expenses (rent/mortgage, utilities, insurance and loan payments), variable expenses (groceries, entertainment and dining), and periodic expenses (travel, car maintenance and subscriptions).
Set financial goals. Decide your short- and long-term goals.
Choose a budgeting method. Use a budgeting app or even an Excel spreadsheet to help with budgeting.
Allocate funds based on budget. Enter your income into each category to get a broad perspective of your finances.
Track and adjust budget. As you work through your budget, review it often to make adjustments.
An emergency fund can help you stay on track with your budget especially with unexpected expenses. Here are some ways to create an emergency fund:
Automate savings. Set up automatic transfers to withdraw from your checking account after your salary is deposited.
Set a goal. Aim to save three to six months of living expenses as a target amount.
Create a separate savings account. Establish a savings account that is specifically designated as an emergency fund.
Track your progress. Keep track of different money milestones that you reach as you’re building your emergency fund.
Replenish your savings. If there is a dip in your emergency fund, build it back up as soon as you can.
Having open discussions about investments and saving for retirement is essential if adult children want to continue to develop their financial independence. Here are few tips to help adult children save for the future:
Emphasize the principle of paying yourself first. Explain that paying yourself first by putting some money away in a savings account is a good way to start the process of growing a rainy day fund.
Explain compound interest. Show your adult children that putting away a little at a time in the short-term can grow significantly in the future.
Introduce retirement accounts early. Have a conversation about IRAs and 401(k) plans and how they work, as well as employer matching and tax benefits.
Rudri Patel contributed to the reporting of this article.
This article originally appeared on GOBankingRates.com: Why Cutting Your Adult Children Off Financially Can Benefit Them
